Standard Motor Products, Inc. - Growth & Income

Standard Motor Products Inc. (SMP) is in a good position to benefit from the aging car population as Americans hold on to their vehicles longer. The company, which manufactures and distributes automotive replacement parts, recently reported strong third quarter results driven by solid top-line growth.

Estimates have been rising, too, sending the stock to a Zacks #1 Rank (Strong Buy). With a 1.5% dividend yield and attractive valuation, there is a lot to like about Standard Motor.

Company Description

Standard Motor Products operates in two major segments: Engine Management and Temperature Control. Approximately two-thirds of sales come from the engine management division, with the other third coming from temperature control.

Standard Motor sells its products through the major auto parts stores, such as Advance Auto Parts (AAP), AutoZone (AZO), and O'Reilly Automotive (ORLY).

Third Quarter Results

Standard Motor reported third quarter earnings per share of $0.43, beating the Zacks Consensus Estimate by 48%. It was a 23% increase over the same quarter in 2009.

Sales were up 10.7% year-over-year due in large part to the aging car population. Engine management grew by 12.1%, while temperature control sales were up 20.6% over the same period.

The gross margin improved from 24.2% of sales to 26.4% in the quarter due to the benefits of production at its Mexico manufacturing operations. Meanwhile, operating income increased 71.1% year-over-year.

Outlook

Earnings estimates have been rising since the company reported its solid quarter, as seen in the Price & Consensus chart:

The Zacks Consensus Estimate for 2010 is $0.91, representing 30% EPS growth over 2009. The 2011 estimate is currently $1.11, corresponding to 21% growth. It is a Zacks #1 Rank (Strong Buy) stock.

Dividend

The company suspended its dividend in the midst of the financial crisis as the share price fell below $2. The stock has rebounded since then, and the company began paying a dividend once again early in 2010. It currently yields 1.5%.

Valuation

The valuation pictures looks attractive for Standard Motor. It trades at 14.4x forward earnings, a discount to the industry average of 16.4x.

Its price to book ratio is just 1.4, well below the peer group multiple of 2.4. Its price to sales ratio is only 0.4 compared to the industry average of 0.7.

Todd Bunton is the Growth & Income Stock Strategist for Zacks.com.

 
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